A.M. Best Affirms Ratings of United Services Automobile Association, Its Subsidiaries and USAA Capital Corporation

A.M. Best Co. has affirmed the financial strength rating (FSR) of
A++ (Superior) and issuer credit ratings (ICR) of “aaa” of United
Services Automobile Association (USAA) and its property/casualty and
life/health subsidiaries. Concurrently, A.M. Best has affirmed the debt
rating of “aaa” on the medium-term note program and the debt rating of
AMB-1+ on the commercial paper program of USAA Capital Corporation.
The outlook for all ratings is stable, with the exception of the rating
on commercial paper, which does not have an outlook. Both companies
above are domiciled in San Antonio, TX. (See below for a detailed
listing of the companies and ratings.)

The rating affirmations reflect USAA's superior capitalization and
strong operating results through focused business and financial
strategies. USAA maintains diversified sources of earnings, capital
accumulation and strong enterprise risk management (ERM) with a full
range of financial products and services to its membership of military
and ex-military personnel and their dependents. USAA's low cost
structure, high customer retention, effective use of technology and
exceptional customer service capabilities has enabled it to build a
sustainable competitive advantage in the personal lines sector. As a
result of these strengths, USAA has built a sizeable market position,
especially in the property/casualty segment, as the nation's
seventh-largest private passenger auto and sixth-largest homeowners'
policy provider, based on 2011 industry direct premium data.

Partially offsetting these positive rating factors is USAA's exposure to
frequent and severe weather-related events, with approximately 40% of
its premium volume derived from catastrophe-prone states. This exposure
was much in evidence over the past five years, as catastrophe activity
resulted in considerable losses.

However, despite the frequent and severe catastrophe losses of recent
years, USAA continues to produce strong earnings and solid surplus
growth. This was again evidenced in 2012 based on USAA's performance
through September 30, when it produced nearly $1.8 billion in surplus
growth, as well as positive operating earnings, although operating
earnings and surplus growth are expected to weaken somewhat in the
fourth quarter of 2012 due to the impact from Hurricane Sandy. However,
as part of its ERM, USAA has developed strong catastrophe management and
a sound reinsurance program designed to preserve the capital and
financial security of its membership.

In addition, USAA maintains a relatively conservative investment
strategy, which has enabled it to enjoy favorable investment returns,
even during times of significant market turmoil and record low interest
rates. These positive attributes have allowed USAA to retain its
superior ratings. Still, factors that could result in a downward
movement in USAA's ratings include significant deterioration in
underwriting and operating performance, a sudden large or catastrophic
loss event that materially hinders risk-adjusted capitalization, a
material deviation from its submitted financial projections and any
event that causes significant damage to its brand identity and
reputation in the marketplace.

USAA's superior capitalization, strong operating results and business
profile, including available resources at the group level, strongly
support its core life insurance operations. The ratings of USAA Life
Insurance Company and its subsidiary, USAA Life Insurance Company
of New York (together referred to as USAA Life), reflect strong 2012
earnings from core annuity and ordinary life business lines driven by
favorable mortality, prudent spread management, strong premium growth
and persistency attributed to a loyal membership base. USAA Life also
maintains a solid business profile that is supported by available
resources at the group level, and the ratings reflect a highly focused
and well-established presence in the military market. Capitalization and
liquidity are maintained at strong levels through a comprehensive ERM
program that is evident throughout the organization.

Partially offsetting these strengths is USAA Life's challenges
associated with increasing the mix of its ordinary life business versus
accumulation product sales. In recent years, USAA Life's annuity growth
has significantly exceeded its life insurance products, thus overall
reserves are currently weighted toward annuities. While A.M. Best would
prefer a more balanced reserve composition, which would provide for
further diversification, the company has recently implemented a strategy
to provide a more balanced reserve base through the use of reinsurance.
Due to persistent low interest rates, which ultimately impact investment
portfolio yields, USAA Life may be challenged to maintain current
spreads on its annuity business. In addition, while the company's
commercial mortgage-backed securities are performing to terms, overall
exposure remains sizeable relative to capitalization levels.

USAA Life is well positioned at its current rating level. However, key
rating drivers that may lead to negative rating actions include a
sizeable increase in annuity reserves as a percentage of total reserves,
a significant deterioration in operating performance, material
impairments or realized losses in the investment portfolio that result
in diminished capitalization levels.

The FSR of A++ (Superior) and ICRs of “aaa” have been affirmed for United
Services Automobile Association and its following property/casualty
and life/health subsidiaries:

USAA Casualty Insurance Company

USAA General Indemnity Company

USAA Limited

USAA Texas Lloyd's Company

USAA County Mutual Insurance Company

USAA Life Insurance Company

USAA Life Insurance Company of New York

The following debt ratings have been affirmed:

USAA Capital Corporation—

--“aaa” on the medium-term note program

--AMB-1+ on the commercial paper program

The methodology used in determining these ratings is Best's Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best's rating process and contains the different rating criteria
employed in the rating process. Key criteria utilized include: “Risk
Management and the Rating Process for Insurance Companies”;
“Understanding BCAR for Property/Casualty Insurers”; “Understanding BCAR
for Life/Health Insurers”; “Catastrophe Analysis in A.M. Best Ratings”; “Rating
Members of Insurance Groups”; “Insurance Holding Company and Debt
Ratings”; and “Equity Credit for Hybrid Securities.” Best's Credit
Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.